Struggling to Get Ahead: The Age Demographics of Weekly Earnings

April 19th, 2013

by Doug Short

The definitive source for weekly earnings of US employees is the Census Bureau's Current Population Survey, which the Bureau of Labor Statistics uses to catalog extensive historical data on its website. The BLS database gives public access to weekly earnings of the general population age 16 years and over. The data is limited to full-time wage and salary workers, excluding the incorporated self-employed.

This first chart below gives us a snapshot of the annual data for compete series, which reaches back to 1979. We're looking at median weekly wages. The blue line shows us the nominal averages, and the red line shows the same data adjusted for inflation based on the Consumer Price Index for Urban Consumers (what we normally refer to as the CPI). The blue line is certainly the more optimistic of the two, because the red "reality", which shows the purchasing power over time, looks rather flat. As annotated on the chart, the point of adjustment is average CPI from 1982-1984.

However, if we focus on the real earnings and narrow the vertical axis range, we see that the line isn't as flat as it appeared the chart above. Even though the real earnings in the starting and ending year of this series are essentially identical, the ride has been a bit of a roller-coaster.

I've added a callout for the year 2000 in the real earnings chart to highlight the fact that real median weekly earnings for 2012 were the same as at the turn of the century. From that point, however, we can dig much deeper into the demographics of the weekly earnings. The Census Bureau's Current Population Survey expanded the survey questions that enable a wide range of subcategories by gender, race, ethnic origin and age. It's the last of these that we'll study in this commentary.

The Trends for Seven Age Groups Since 2000

The next chart shows the nominal weekly earnings broken down by seven age groups. The first two cohorts are the smallest, ages 16-19 and 20-24, and have the lowest earnings, as we would expect, given the limited job experience and low numbers of college degree holders. The next four are 10-year cohorts, and the last has no upper boundary -- the 65 and older.

In the chart above, all seven lines are sloping upward, but a portion of that slope is the effect of inflation across those thirteen years. The Consumer Price Index increased at an average annual rate of 2.43% over this time frame.

The chart below is inflation-adjusted to the dollar value in 2012. By "chaining" in 2012 dollars during an inflationary period, the earlier values are adjusted upward. When we do this, we see that the lines for some of the age groups slope downward.

A better way to illustrate the earnings trends is to calculate the percent change from the first data point, essentially charting the cumulative change in the earnings purchasing power for each cohort. That's what we see in the two charts below. The first shows the nominal growth for the seven cohorts, which, naturally, gives a positive impression.

However, when we "deflate" the data by excluding inflation, the picture is not so positive.

In the real chart, we see that four of the seven cohorts are earning less than at the turn of the century, with the two youngest faring the worst. The age rankings, of course, are unchanged from the nominal data, but the inversion of the 35-44 and 45-54 cohorts is particularly striking. The 45-54 group shows up as the peak earnings years in household income data (more on that topic here). But for wage earners, the cohort has had negative growth for seven of the 13 years in this series and earns less than the 35-44 cohort.

The two adjacent tables summarize the nominal and real change in earnings for the seven age groups from the first available data in 2000 to the latest in 2012. The real break-even point in the nominal table is 33.3%. In other words, based on annual averages for the Consumer Price Index, the cost of living in 2012 has risen by 33.3% since the turn of the century. In short, it takes about one-third more money in 2012 to have the same purchasing power as in 2000. That's effect of that average annual increase of 2.43% that I mentioned earlier.

Another observation we can make is that the earnings spread between the three cohorts from age 35 to 64 is extremely narrow, a mere $39 ($858, $878 and $897).

And finally, we note that the 65 and over cohort, with its 2012 median weekly earnings of $757, is averaging only $50 more than the 25-34 cohort. However, while earning less than the three younger cohorts, the elderly have had by far the largest income growth since the turn on the century.

This last observation becomes all the more interesting in the context of Labor Force Participation Rates since 2000. The elderly have dramatically increased their employment participation since year 2000. The chart below, based on monthly data, shows a 50% increase in this metric for the 65 and over cohort. There are no doubt many factors contributing to this trend, but the lack of retirement readiness for many in this cohort is probably at the top of the list.